Fin630 Assignment No. 2

“Investment Analysis & Portfolio Management” (Fin 630)

Assignment No.02 Marks: 20

In order to analyze the performance of ABC Company, following information has been
extracted from its financial statements.

1. You are required to calculate the following ratios:

• ROA (Return on assets)

• ROE (Return on Equity)

• EPS (Earning per share)

2. Calculate the value of bond A using 15% coupon with 20-year maturity, paying 40 semiannual payments of Rs. 75 each, assuming required rate of return of 10%

3. Calculate the value of bond B using 11% coupon with 10-year maturity, paying 40 quarterly payments of Rs. 27.5 each, assuming required rate of return of 16%

Important Tips

1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 1 to lecture no 28 and reading handouts as well as
recommended text book).

2. Video lectures can be downloaded for free from www.youtube.com/vu.

Particular Rs. (000)

Net profit after tax 500

Total assets 8000

Common stock
100,000@ Rs. 10
1000

Retained earning 90

Current liabilities 25

Account receivables 50

Cost of goods sold 1800

Long term debt

Bond A

300@ Rs.1000

300

Bond B

200@ Rs.1000

200

Schedule

Opening Date and Time January 03, 2011 At 12:01 A.M. (Mid-Night)

Due Date and Time January 06, 2011 At 11:59 P.M. (Mid-Night)

Solution:

ROA = 0.0625 or 6.25%

ROE = 0.5 or 50%

EPS = Rs.5 /share

value of bond A= Rs. 787.05

value of bond B= Rs. 344.42